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Where a general contractor settled a defective construction claim with the project owner during arbitration, the insurance carrier for the contractor subsequently filed a contribution and indemnity law suit against the engineering firm that had been under separate contract with the owner, alleging that the Owner’s damages were a single injury that resulted from the negligence of the engineer and the work of the contractor, who must legally be deemed joint tortfeasors.  An appellate court held that summary judgment was improperly granted to the engineer by the trial court, and that the matter must go to a jury because facts alleged were adequate to support claims that the engineer provided insufficient information in the construction drawings, provided inadequate designs, and failed to provide adequate construction administration.  Zurich American Insurance v. Heard, 740 S.E.2d 429 (Georgia, 2013).

In this case, the Owner initially filed claims against both the contractor and the architect in an arbitration demand.  The contractor objected to having the claims against itself and the architect joined in a single arbitration, and filed a motion to sever the claims based on contract language that stated, “No arbitration arising out of or relating to the Contract shall include, by consolidation or joinder or in any other manner, the Architect … except by specific reference to the Agreement and signed by the Architect, Owner, Contractor and any other person or entity sought to be joined.”  After the architect was dismissed from the arbitration, the Owner filed suit against the Architect in state court and continued its action against the contractor in arbitration.

Before conclusion of the arbitration proceedings, the contractor reached settlement with the owner for several million dollars.  Before trial in the state court, the architect reached settlement with the owner for about $100,000.

The contractor’s insurance carrier covered part of the loss of the contractor and then filed suit against the Architect to recover damages it believed the Architect was liable for as a joint tortfeasor with the contractor.  Under the law of the state of Georgia, joint liability and the right of contribution do not exist between settling joint tortfeasors when damages have been apportioned between the parties by a trier of fact such as a jury.  But where, as in this case, there has been no apportionment of damages by a trier of fact, there can be a contribution action such as the one filed by the insurance carrier herein.

Comment:  This case is interesting in that it touches on several issues that parties should consider when executing their contracts and when later settling claims.  The contract here did not allow joinder and consolidation of claims against different parties in the same arbitration by the Owner unless everyone agreed.  That is consistent with current provisions of the AIA form contract documents.  There are certainly advantages and disadvantages to having the claims joined into a single proceeding.  It is something to think about when negotiating the contract.  With regard to the causes of action in the contribution action against the architect, the summary judgment was reversed and the matter now must go back to trial on the merits.

If the contractor had attempted to make a claim directly against the Architect for breach of a contractual duty (with third party beneficiary rights) or breach of an independent duty of care, those claims may have been dismissed due to lack of privity of contract and possible application of the economic loss doctrine.  But if the Owner recovers damages against the contractor, that are also attributably to a joint tortfeasor (Architect), the contractor’s insurance carrier could prevail in recovering contribution against the Architect for the joint tortfeasors share of the damages.

 

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 15, No. 8 (Aug 2013).

Copyright 2013, ConstructionRisk, LLC